Puerto Rico’s economic outlook remains challenging and uncertain

The initial disbursement of federal recovery funds helped the local economy to achieve a short-term dynamism at the beginning of 2018. Some indicators experienced a double-digit growth rate, such as cement, retail, and auto sales.

According to reliable sources, during 2018, Puerto Rico received $8 billion in direct and indirect funding from FEMA and other federal agencies to mitigate the impact of hurricane Maria. Nevertheless, the economy hasn’t reach positive ground yet. The latest publication of the Economic Activity Index (EAI) report, shows that economic performance is still below the pre-Maria levels. Despite local and federal efforts to stabilize the economy, Puerto Rico’s social and economic situation continues to remain in negative terrain.

Recent economic data points also indicate that the short term economic dynamism experienced is gradually slowing down as the initial recovery money has been used. Moreover, the government is not receiving the reconstructions funds approved by Congress. According to the Fiscal Plan certified by the FOMB, Puerto Rico should receive $12 billion during fiscal year 2019.

Aligned with that allocation of reconstruction funds, the FOB projected a 7.5% growth for fiscal year 2019, a figure that is extremely aggressive considering the current external and internal factors.

Based on our econometric model, our firm has preliminary projections, showing a more conservative figure in the range of 2% - 3%, for the fiscal year 2019. This alternative scenario, assumed that reconstruction investment will fall short compared to the original projections, and adverse external events, including a U.S. recession in 2019.

Also, in 2019 the political environment does not look very friendly for Puerto Rico. The federal shutdown should alarm local authorities that were optimistic about the new democratic leadership which promised to increase federal funding. A divided Congress increases political tensions in Washington that could affect important budgetary decisions related to the Island.

As we have previously stated, the business sector must prepare for a very challenging 2019 and be cautious in their decision-making process. Strategic thinking must prevail to keep the operations profitable and stable during the current stormy weather.

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